10 Common Misconceptions About Tax Returns
No one will argue that our tax code is simple. Nick Smith of the US House of Representatives 93-05 stated it well when he said, ""The federal tax code has about four times as many words as the bible. Accompanying the law are a staggering two-and-a-half million pages of regulations." He certainly wasn't the first nor the last to make a statement concerning the complexity of our tax code. In fact it's common knowledge that "Title 26 of the United States Code" is extensive. This helps to explain the enormous amount of confusion over what the federal tax law actually says.
Here are just a few of the most common misconceptions:
1.If you can't afford to pay your taxes now, wait to file until you can.
This is a huge mistake and could open you up to penalties. If you can't afford to pay your taxes when they are due and are unable to obtain a traditional loan you can try to work out a payment plan with the IRS, but whatever you do don't ignore your taxes.
2.If you get a big refund at the end of the year then you are doing everything perfectly.
Actually a large refund means too much money was withheld from you throughout the year. In other words you are giving the government an interest free loan. Many would argue your money would be better served working for you throughout the year.
3.The IRS only audits the rich.
Income is not a primary factor in determining if someone is audited.
4.Now that I'm a homeowner I can take the standard deduction and deduct interest paid on my mortgage.
Sorry, you can only have one. Select the option that allows you the most significant deduction.
5.Only business owners can write off work related expenses.
Good news, not only the boss gets to write off expenses. You can write off items that you have purchased for your employment. This may include children's school supplies if you are a teacher or the dry cleaning for your pilots uniform.
6.You can only claim your parents as dependents if they are living in your home.
Actually, regardless of where they reside, if you are providing significant support you may still claim them as a dependent. Check with a CPA to find out if your circumstances warrant this.
7.E-filing increases your chances of getting audited.
Nope, the IRS continues to audit about 2% and the real triggers are things like filing late, math errors and high self-employment income.
8.All married taxpayers must file jointly.
Actually you can file as "married, filing separately". There are unique circumstances where this could be beneficial. Check with a CPA to see what's best for you.
9. Filing for an extension increases your chances of being audited.
Nope, most CPA's agree that there is no correlation between filing an extension and being audited, so if you need the extra time to get things done right then do it.
10. All CPA's are tax experts.
Although all CPA's have had tax training not all of them go into tax prep, or keep up on tax laws, and since the regulations are constantly changing this is critical to preparing a return properly. Before you hire a CPA to prepare your taxes make sure that they have ample experience.
by: Gen Wright
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